Vertex: With New Drug Approval Shares May Still Have Room to Run

Includes: MRK, RHHBY, VRTX
by: Zvi Bar

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) announced that the U.S. Food and Drug Administration (FDA) approved its Incivek (telaprevir) tablets for some patients with genotype 1 chronic hepatitis C with compensated liver disease and/or cirrhosis (liver scarring). Incivek (pronounced in-SEE-veck) was approved for people who are new to treatment and those treated previously without being cured. On May 13, the FDA also approved Victrelis (boceprevir) by Merck (NYSE:MRK). These two are the first hepatitis C drugs in almost a decade to win FDA approval.

Vertex stated that Incivek should be available in pharmacies now. The company also introduced a comprehensive financial assistance and patient support program to help people who might not otherwise be able to afford the treatment get it and said that more information is available on its Website.

Vertex ran three Phase 3 studies on INCIVEK, indicating people who received it in combination treatment achieved significantly higher rates of sustained viral response (SVR) or cure compared with those who received pegylated-interferon and ribavirin alone, regardless of prior treatment experience. The Phase 3 comparison information from Vertex’s release shows a striking improvement in SVR/Cure rates:
People new to treatment:
79 percent vs. 46 percent
People who were treated previously but did not achieve a viral cure:
-- Relapsers:
86 percent vs. 22 percent
-- Partial responders:
59 percent vs. 15 percent
-- Null responders:
32 percent vs. 5 percent

Merck, through Schering-Plough, and Roche (OTCQX:RHHBY), previously sold competing versions of interferon. After Victrelis was approved for use with either of those medications, the two entered an agreement to combat the anticipated Incivek approval. Incivek's therapy will also require interferon. Additionally, Victrelis therapy will cost less than Incivek ($26,000 to $44,000 versus $49,200). The market for these therapies will be significant. Approximately 170 million people suffer chronic hepatitis C worldwide, 3.2 million in the U.S. alone, with no vaccine in sight. Many have stated that the growth may reach epidemic levels.

While it is true that this should all result in VRTX achieving significant improvements to revenue earnings, these results are at least to some extent already included in the company's market value. The company is now valued at approximately $11 billion, with about $200 million in annual revenue before Incivek.

Nonetheless, Incivek appears to have the potential to be a true blockbuster drug therapy. At its current cost, approximately every 20,000 patients that pay full price would represent $1 billion in revenue. It is lilely, though, that the cost of such therapies will come down over time, especially where any other competitors are approved.

If Vertex ends up dominating market share versus Merck's Victrelis and any coming therapies, Incivek will truly be a blockbuster drug. The well known efficacy results for Incivek indicate that many hepatitis C patients will ask for it by name, especially if they have insurance that will cover the considerable cost. It probably will not be long before Vertex is the one making agreements with Roche, Merck and others.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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